The value of money: Pensions Ombudsman awards for non-financial loss

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A series of recent cases has considered the remedies available for non-financial loss when a pension scheme member or other beneficiary complains to the Pension Ombudsman about maladministration by the employer, trustees, scheme manager or scheme administrator. Two of these cases were appeals in the High Court against determinations of the Pensions Ombudsman, and two were Ombudsman decisions. The High Court cases reflect a recent tendency towards larger awards, and there are some early signs that the Ombudsman may be moving in a similar direction, albeit that all such cases will depend to a significant degree on their individual facts.

The position before 2017

By way of background, the Ombudsman will commonly direct that a respondent pays financial compensation to a complainant in relation to a non-financial loss, such as significant distress and inconvenience caused by maladministration. This approach differs from that of the courts, which are generally reluctant to award damages for distress and inconvenience.

Although there is no statutory limit on the level of such awards, the High Court ruled in the case of Swansea City Council v Johnson in 1999 that, in the absence of exceptional circumstances, such an award made by the Ombudsman should not exceed £1,000. In 2015, the Ombudsman issued guidance stating that £500 should be the starting point in cases where maladministration is sufficiently serious to require financial compensation, with a usual range of £500 to £1,000. The Ombudsman has directed higher awards over the years in exceptional cases (for example, a £5,000 award in 2011 and a £2,500 award in 2013), but in practice it remains unusual for awards under this head to significantly exceed £500.

Out of touch with the value of money?

However, in March 2017, in the High Court case of Baugniet v Capita Employee Benefits Ltd (trading as Teachers' Pensions), the judge, HHJ Simon Barker QC, directed the Ombudsman to reconsider the £1,000 upper limit, commenting that such a review was "appropriate if not overdue", and describing the current limit as "out of touch with the value of money". He suggested that the upper limit should be increased to £1,600, to reflect the present sterling value of an award of £1,000 in 1998. The Ombudsman had awarded £750 to Dr Baugniet for maladministration caused by delays to the provision of an accurate service credit calculation. Dr Baugniet appealed to the High Court, which allowed the appeal in part and remitted the matter to the Ombudsman for further consideration and redetermination of, among other things, the appropriate compensation for the distress and inconvenience caused by the maladministration to which Dr Baugniet was subjected.

Then, in October 2017, in the High Court case of Smith v Sheffield Teaching Hospitals NHS Foundation Trust, the High Court held that the Ombudsman had made an error of fact and/or principle in awarding only £500 for distress, on the basis that information provided to Mrs Smith over a six year period had been incorrect, there had been more than one instance of maladministration and there had been numerous opportunities to correct that maladministration. The High Court considered, therefore, that the award in this case should be above the top end of the band for non-exceptional cases (which it took to be £1,600, as set out in Baugniet), and, exercising the compensating power afresh, awarded Mrs Smith £2,750.

Most recently…

In light of these High Court cases (particularly Smith), it is therefore perhaps surprising that in a recent determination (Mr Y, 26 October 2017) the Deputy Pensions Ombudsman rejected the member's contention that each instance of maladministration should be treated as a separate act causing distress and inconvenience and should therefore attract its own award. In this case, despite finding that the complaint could be broken down into three separate issues, the award for distress and inconvenience was for only £500. This appears to differ from the approach taken by the High Court in Smith, although as noted above, each case will be taken on its own facts and merits. It should also be noted that the Ombudsman's determination was made only a matter of days after the High Court handed down its judgment in Smith, and therefore it may not have been possible for the impact of that case to be fully taken into account.

The very recent Ombudsman's determination in the case of Mrs S (15 November 2017) appears to be more in line with the recent High Court case law, albeit that the language used by the Ombudsman may put this case into the category of exceptional cases for which large awards have been made previously. In this case, the Ombudsman found that Mrs S had suffered "extremely significant distress and inconvenience" as a result of the employer's maladministration in failing to make pension payments of £25,000 in respect of her employment, but also cited the employer's failure to engage with the various parties that had attempted to assist Mrs S in resolving her complaint, including the Ombudsman's office itself. The Ombudsman described this non-engagement as unacceptable and awarded Mrs S compensation of £2,500 compensation in addition to the outstanding pension payments.

What does this mean for employers and trustees?

The landscape in relation to the level of compensation awarded for distress and inconvenience appears to be shifting, and employers and trustees should not assume that such awards will be made at a de minimis level, particularly where there has been significant maladministration over a prolonged period.

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